NZ economy: more ponzi than real growth

By Leith van Onselen

Bernard Doyle, a strategist at JBWere, has penned a ripping new report on the New Zealand economy, arguing that rabid population growth is masking underlying weak productivity and poor per capita GDP growth. From

New Zealand has been in a productivity recession since 2012. Not that you’d notice from headline GDP numbers, which continue to print impressively. However GDP per hour worked has flat-lined for five years. Our per capita GDP growth is similar to Japan.

In the absence of productivity gains, our economy has relied on more people, working more hours. Net migration provides a conveyor belt of fresh labour, but it comes with attendant bottlenecks in housing and infrastructure. The profitability windfall for these sectors has not arrived, with earnings warnings from all the major listed construction companies this year.

An economic growth model that is reliant on pushing the capacity envelope can be prone to mishap. Against that, our key sources of demand: agricultural commodities, tourism and net migration, are volatile and have a habit of evaporating at short notice. Moreover asset prices have become a vulnerability: both housing and equity markets in New Zealand are priced for perfection…

The New Zealand economy appears locked in a volume game. Since the turn of the century, the economy has grown in size by around 50%. However most of the growth has come from more workers, working harder…

The holy grail of prosperity, GDP per hour worked, has grown at a far less impressive 13%. In other words, only about a quarter of our growth has come from working smarter. More worryingly, GDP per hour stalled in 2012. So, for the past five years, all of our economic growth has relied on more people, working more hours…

Japan for example, which has similar per capita GDP growth to New Zealand, could conceivably achieve similar headline GDP growth if it chose to loosen its immigration policy…

High immigration is touted as a solution to alleviating capacity pressures, but it becomes a game of bop-a-mole. Shortages of labour in specific sectors (agriculture, tourism) may be relieved, but exacerbated in others (housing, infrastructure, education). Why? Migrants, like locals, need accommodation, transport, schools, hospitals and other necessities of life.

Wage increases to attract talent into successful businesses can be undermined if the solution to input shortages is invariably tapping into the vast global labour pool. Relative prices play a critical role in winnowing the wheat from the chaff in the productive sectors. If a business cannot afford to attract staff from another area of the economy, it can be a signal to adapt. Dampening this will ultimately hamstring productivity growth.

Of course, exactly the same arguments can be applied to Australia, where headline economic growth has been maintained at reasonable levels – due to strong population growth (immigration) – but per capita growth has collapsed:

Both nations have effectively engaged in a form of population ‘quantitative easing’, whereby they have inflated aggregate growth by boosting the numbers of consumers in the economy via mass immigration. But in the process they have damaged individual living standards as GDP growth per capita has stagnated all the while infrastructure has become crush-loaded and housing more expensive.

The focus of both governments should shift to focusing on qualitative measures that improves productivity and living standards on a per capita basis.

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Unconventional Economist


  1. Vanity Fair makes so much sense:

    “With stricter border enforcement, employers would immediately start to feel a reduction of available labor, as is already happening. Wages would tick up. On the more gradual front, with a system that selects for skill, most immigrants coming to the United States would out-earn the native-born, raising per-capita productivity for everyone and boosting our fiscal health. With the share of low-skill workers becoming smaller, many sorts of employment would start to pay better: home care, security work, massage therapy, dishwashing, gardening, housekeeping, cleaning, construction, gardening, manufacturing. Out in the fields, agricultural wages would likewise start to rise little by little. Union drives would go better, as employers stopped being able to threaten workers with deportation. We’d see more productivity innovations as labor costs forced businesses to make better use of their human resources or to mechanize, as in Japan.

    Environmental conservation would become easier for the simple reason that fewer people would be making demands on our natural resources. Our persistent droughts out west would become less severe with a slowly growing population than with a rapidly growing population, for the simple reason that there would be more water to go around. Americans would continue to consume too much fuel and electricity per person, but lower numbers would mean less strain on our resources. Air pollution would be curbed. Traffic increases would be slower. National parks would become only slightly, not drastically, more crowded each year.”

    (15 hous ago)

    The Guardian would never say what Vanity Fair just said.

  2. New Zealand migrant intake issues will be self correcting as soon as NZ puts in controls on the pretext visa rackets (international student, spousal, family reunion etc).

    Because as soon as they get residency most exit NZ to go to Australia.

    It will be Australia that will be permanently damaged regardless of any NZ migrant shutdown unless something is done.

    New Zealand is basically a third world migrant staging camp for access into Australia.

    Winston Peters “New Zealand sells two things : milk powder and residency stamps to get into Australia”.

    Can’t get into Australia ??

    Then get in via NZ on a pretext visa or grant (85% are totally unskilled), work usually illegally, underground / blackmarket / illicit, pay back the foreign agent procurer (all the same old rackets as here).

    Get the NZ residency and then enter Australia on a special category visa – full work rights.

    Statistics New Zealand notes despite their record intake, the NZ population hasn’t grown by the intake number in the last decade, they leave to enter Australia..

    NZ immigration data shows that over half these ‘new migrant residents’ then enter Australia.

    The scale of the NZ residency grants ?
    50,000 a year.
    Statistics NZ : “Over the last 10 years the number of people approved residence has varied between just under 39,000 and just over 52,000 with the number for most years between 40,000 and 45,000 as detailed in the table below. Immigration New Zealand’s resident visa approvals forecast for the current year indicates that approvals were likely to be over 54,000 if no changes were made to policy or processes – an increase of more than 2,000”.

    That’s nearly half a million over 10 years, of which 150,000 – 200,000 then came into Australia on a SCV.

    Perhaps more as the anecdotal evidence is the actual NZ born who came here during 1980-1995, who didn’t take up Australia citizenship are now aged & going back for NZ with cashed out super and for NZ healthcare, welfare & pensions – but the NZ SCV numbers remain high (680,000) – swollen by these hundreds of thousands of non NZ born coming in via the NZ SCV back door.

    The backlog in the NZ transit camp?

    Another 200,000 (50,000 a year plus any kids in the 4 year residency wait)… of non New Zealand born unskilled migrants in the queue waiting to get into Australia.

    There is a very simple & fair solution.

    The NZ / Australia reciprocal Special Category Visa should be restricted to NZ or Australian born adults only.

    The intention was free movement of Aust New Zealand citizens, not blatant migrant racketeering.

    That decision should be retrospective, the hundreds of thousands of third world NON NZ born migrants exploiting the SCV loophole already here, should have their work rights removed.

    That will shut down the NZ transit camp migrant intake and the third world visa racketeering overnight.

    That helps NZ in the short term.
    And protects Australia in the longer term in closing this back door.

  3. Latest REINZ report for July …

    House prices are tumbling in the main centres as the volume of homes being sold takes a dive |

    House prices fell substantially in the main centres last month as sales volumes dried up, according to the latest figures from the Real Estate Institute of NZ.

    The REINZ’s national median selling price dropped $28,000, or 5%, to $518,000 in July, down from its peak of $546,000 in March.

    It was the fourth consecutive month that the national median price has fallen.

    In Auckland the median selling price dropped to $830,000, down by $75,000, or 8%, from its March peak of $905,000. … read more via hyperlink above …

  4. Jeremy Loader was looking for an affordable home when he spotted something for under $200,000. …

    It takes a warehouse to raise a village … Julie Iles … Fairfax / Stuff NZ

    Modular homes are on the rise as homeowners priced out of the market see it as a cheaper and more adaptable new build.

    Thanks to the growing popularity of modular building, a factory in Upper Hutt is churning them out at near capacity.

    Matrix Homes is working on 22 homes for a residential “village” in the Wellington suburb of Tawa that will go up in late September. The company ships homes all over New Zealand on the back of a truck for homeowners looking for a quick and easy way to build. … read more via hyperlink above …